Broker snap: Bunzl's premium rating hard to justify, says Berenberg

28th Aug 2013 09:03

Berenberg has maintained its 'sell' rating for distribution business Bunzl, saying that the stock's premium rating is hard to justify following its strong performance as of late.Since the start of the year, the share price has gained around 36% and is currently trading near all-time highs.The company's first-half report released on Tuesday showed that revenues rose 11% at constant currency to £2.96bn, driven by organic growth of 1.9% and a contribution from M&A of 9.1%."With organic growth remaining modest, Bunzl is doing its best to compensate with M&A which at the top line now accounts for more than 80% of total growth. As a result, in H1 the company achieved a respectable 10% earnings per share (EPS) growth, in line with what it has delivered over the last decade," said analyst Simon Mezzanotte."The stock has, however, re-rated considerably in the last year and on 16.5 times 2014 EPS, it looks too expensive to us."This price-to-earnings ratio is a 20% premium to its historical average.Mezzanotte said that looking ahead of the second half the outlook "remains stable albeit dull". Organic growth is expected to stay at modest levels, but margins are unlikely to improve significantly and pricing will remain under pressure.Berenberg has raised its target price for the stock from 910p to 1,050p to reflect a slight upgrade to 2014 EPS estimates.The share price was down 0.44% at 1,370p by 10:17 on Wednesday.BC